US revival of the quad might have died

It would seem that the United States’ attempt to revive the quadrilateral security arrangement comprising the US, Australia, Japan and India might have already died. The “celebration” (by anti-China crowds in those four countries) about US President Donald Trump renaming the Asia-Pacific region the “Indo-Pacific” is a sure sign that the quad’s revival could be premature.

Two of the participants, Japan and India, seem to be having second thoughts about “containing” the dragon, weighing the pros and cons between containment and engagement. They might also ask themselves what could a quad possibly do even if it is formed. Such self-evaluations might be the reason behind the sudden U-turn on China.

Whether a quad could improve the economic and geopolitical prospects of India and Japan is far from clear. But the quad’s revival would spur US economic growth via massive arms sales to the three allies. Accounting for 13% of manufacturing, the aerospace and defense industries have a profound impact on the US economy, its Department of Commerce has said. The US Bureau of Labor Statistics also reveals that defense workers received the highest annual wage, estimated at an average of more than US$90,000, in 2017.

Had the quad’s revival materialized, US President Donald Trump’s political fortunes might also have been enhanced. He could boast about fulfilling his campaign promise of bringing back high-paying manufacturing jobs and “Making America Great Again.”

However, the two US Asian allies might have to take away much-needed funds from economic and social programs to pay for expensive US armaments. Japan’s prolonged period of deflation and stagnant economic growth, averaging less than 1.5% a year since the 1990s according to the International Monetary Fund, would suggest that Tokyo should focus more on economic development programs than on joining the US to contain China. Moreover, Japanese industries might need to invest overseas to sustain financial viability because of an aging and shrinking population.

In contrast to Japan, India earned the title as the world’s fastest-growing economy at 7.2% in 2017, yet it struggles to reduce massive poverty. Further, Prime Minister Narendra Modi’s much-talked-about “Make in India” policy to establish a vibrant manufacturing sector and create employment appears to be faltering because of the country’s harsh labor laws and inadequate infrastructure.

Finally, containing China’s rise by military or economic means might not be possible without incurring huge damage to property and the loss of human lives, putting sides’ economies and security at risk. China is the biggest trade partner of both Japan and India, recording two-way trade respectively at more than $300 billion and $84 billion in 2017, according to the World Bank. Close geographic proximity would put the two countries vulnerable to Chinese attacks. That is, containing China is “dead on arrival,” as it could culminate in mutual assured destruction.

India’s U-turn on China relations

A thorough cost-benefit analysis might have led India to abandon confrontation in favor of engagement with its muscular northern neighbor, explaining why it is playing down border disputes and resumed the China-India Strategic Dialogue in Beijing on April 14. In that meeting, a number of cooperative proposals were reported to have been discussed, including railways, clean energy and high-tech, in which China is a global leader.

A rapprochement with China seems to be in the minds of India’s academic and business communities. Professor B R Deepak of Jawaharlal University has urged India to join the Belt and Road Initiative, pointing out its benefits. Deepak said in an interview with People’s Daily that the BRI would bring in Chinese investment to build India’s manufacturing industries and inadequate infrastructure – which is the major obstacle preventing the success of Modi’s “Make in India” policy.

Manufacturing could boost employment opportunities for India’s huge jobless youth population. At 30.8%, it is the highest in the major developed and developing countries, attributed to inadequate job-creating industries and restrictive labor laws, according to a survey released by the Organization for Economic for Economic Cooperation and Development last year.

Being a strategic trading hub linking South Asia, the Middle East, Africa and China, India could be well positioned to reap the benefits of the BRI. Should that materialize, India could enjoy significant increases in its two-way trade with China. For example, India has offered China soybean to replace the US product in the event of a US-China trade war.

What’s more, India’s newly minted “15-Year Vision Plan” (VP) is an ambitious roadmap to triple the size of its economy within 15 years. To attain the goal, India plans to replace the existing five-year plans with a seven-year strategy for 2017 to 2024 and a three-year “Action Agenda” from 2017 to 2019. However, specifics of the plans have not been divulged.

What’s interesting about the VP is India’s willingness to study if not emulate the Chinese model, particularly in such areas as urbanization as a vehicle to spur economic growth and poverty eradication.

China has built hundreds of small cities to accommodate billions of rural dwellers moving from the countryside. Since Deng Xiaoping embarked on economic and social reforms, the urban population has swelled to more than 52% of the total from a little over 10% in 1980, according to China’s National Bureau of Statistics (NBS). That is, urbanization has played an important role in China’s rapid economic growth and lifting between 700 million and 800 million people out of poverty over 30 years, according to World Bank estimates.

Japan’s rationale for improving relations

Though the ruling Liberal Democratic Party under Prime Minister Shinzo Abe might want to join the US in containing China, economic and geopolitical realities are sinking in. The Japanese domestic population has been declining at an annual rate of 0.18% since 2015. According to Worldometers.info, the rate of decline is increasing rates, from 0.09% in 2015 to o.23% in 2017. Unless alternative markets can be found, the demographic issue could have a catastrophic effect on Japan’s economy and civil society.

Further, the United States’ erratic foreign policies are not helping Abe’s case for joining the quad, because the Trump administration is sending confusing messages to friends and foes alike. Trump’s approach to his “America First” policy is more or less a zero-sum game, penalizing nations to protect domestic industries. For example, Trump announced tariffs of 25% and 10% on steel and aluminum respectively to protect the US industries in those metals.

Indeed, past US administrations did just that, forcing Japan and some European nations to appreciate their currencies and voluntarily reduce exports to America, under the 1985 Plaza Accord. That is, no US president would tolerate a prosperous Japan (or any country), particularly one that could challenge or harm its economic interests. As a result, Japan is seeking refuge in China, minimizing the adverse effects of Trump’s “America First” policies.

China might be the two countries’ future

Compared with other economies, China might be the best hope for improving the economic prospects of India and Japan. The Chinese economy is growing at an annual rate of more than 6.5%, according to the IMF, with gross domestic product passing $13 trillion in 2017 according to China’s NBS. Meanwhile the European Union’s GDP is growing at around 1.5% annually, and America’s by 2.5%, suggesting that there is a limit to the amount of Japanese goods the West can buy.

What’s more, the West is increasingly protectionist and yielding to populist voices. British voters’ decision to withdraw from the EU was the result of xenophobia against massive inflows of “undesirable migrants” (read non-whites and Eastern Europeans) and high unemployment. Trump’s “America First” policy means just that, US first, everyone else second or last. His views on immigration and trade cannot be a comfort to India and Japan, both of which are dependent on globalization and are non-European.

Setting aside the ideological and historical differences between India and Japan, engaging China would be a better option, economically and militarily. China has the market to absorb huge quantities of Japanese and Indian exports. It also has the financial resources and technical expertise to build India’s woefully inadequate infrastructures.

Rapprochement also serves China’s interests. Greater access to the world’s third- and sixth-largest economies would further sustain its upward trajectory. Enjoying peace with its two powerful neighbors would maintain stability in the Asia-Pacific region, giving it sufficient time to achieve the “Chinese Dream” of a prosperous and strong socialist country by 2050.

China might be “communist” and “authoritarian,” but its words and deeds have earned praise around the world for promoting globalization, creating an interconnected, inclusive, invigorated and innovative world for “shared prosperity.”

The alternative, forming a quad to “contain” China, might be far worse.

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Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China's Economic Rise and Its Global Impact in 2015. HIs second book, Developed Nations and the Economic Impact of Globalization, was just published by Palgrave McMillan Springer.